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1. Consider an economy where the ratio of required reserves to deposits is r = 0.05 , the ratio of currency holdings to deposits is

1. Consider an economy where the ratio of required reserves to deposits is r = 0.05, the ratio of currency holdings to deposits is c = 0.2 and the ratio of bank excess reserves to deposits is e = 0.05. What is the value of the M1 money multiplier predicted by the money multiplier model? Explain your answer.

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